“There can be no real political democracy unless something is approaching an economic democracy.” (Theodore Roosevelt).
The first point that needs to be discussed is what exactly economic democracy means. In simplified terms, it is the philosophy according to which the power of forming decisions should be transferred from industrial capitalists or corporate managers into the hands of the ones who are working for it, or with it, or are using it as a consumer. This would entail people such as wage workers, suppliers, creators, consumers, or the public in general.
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No single definition or approach encompasses economic democracy, but most proponents claim that modern property relations externalize costs, subordinate the general well-being to private profit, and deny the polity a democratic voice in economic policy decisions. In addition to these moral concerns, economic democracy makes practical claims, such as that it can compensate for capitalism's inherent effective demand gap.
Proponents of economic democracy generally argue that modern capitalism periodically results in economic crises characterized by a deficiency of effective demand as society is unable to earn enough income to purchase its output production. The corporate monopoly of common resources typically creates artificial scarcity, resulting in socio-economic imbalances that restrict workers from access to economic opportunity and diminish consumer purchasing power. Economic democracy has been proposed as a component of larger socioeconomic ideologies, as a stand-alone theory, and as a variety of reform agendas. For example, as a means to securing full economic rights, it opens a path to full political rights, defined as including the former. Both market and non-market theories of economic democracy have been proposed. As a reform agenda, supporting theories and real-world examples range from decentralization and economic liberalization to democratic cooperatives, public banking, fair trade, and the regionalization of food production and currency.
More than two hundred years ago, the Constitution of The United States of America was written. Our Constitution is often thought of as part of an aristocratic counterrevolution that stands in contrast to the democratic revolution of 1776. But our Constitution has at least one radical feature: It isn’t designed for a society with economic inequality.
The founders didn’t foresee America becoming a global superpower. They didn’t plan for the internet or nuclear weapons. Commentators wring their hands over all of these transformations — though these days, they tend to focus on whether this country’s founding document can survive the current president.
But there is a different, and far more stubborn, risk that our country faces — and which, arguably, led to the TV star turned president in the first place. Our Constitution was not built for a country with so much wealth concentrated at the very top nor for the threats that invariably accompany it: oligarchs and populist demagogues.
From the ancient Greeks to the American founders, statesmen and political philosophers were obsessed with the problem of economic inequality. Unequal societies were subject to constant strife — even revolution. The rich would tyrannize the poor, and the poor would revolt against the rich.
The solution was to build economic class right into the structure of government. In England, for example, the structure of government balanced lords and commoners. In ancient Rome, there was the patrician Senate for the wealthy and the Tribune of the Plebeians for everyone else. We can think of these as class-warfare constitutions: Each class has a share in governing, and a check on the other. Those checks prevent oligarchy on the one hand and a tyranny founded on populist demagogy on the other.
What is surprising about the design of our Constitution is that it isn’t a class warfare constitution. Our Constitution doesn’t mandate that only the wealthy can become senators, and we don’t have a tribune of the plebs. Our founding charter doesn’t have structural checks and balances between economic classes: not between rich and poor, and certainly not between corporate interests and ordinary workers. This was a radical change in the history of constitutional government.
And it wasn’t an oversight. The founding generation knew how to write class-warfare constitutions — they even debated such proposals during the summer of 1787. But they ultimately chose a framework for government that didn’t pit class against class. Part of the reason was practical. James Madison’s notes from the secret debates at the Philadelphia Convention show that the delegates had a hard time agreeing on how they would design such a class-based system. But part of the reason was political: They knew the American people wouldn’t agree to that kind of government.
At the time, many Americans believed the new nation would not be afflicted by the problems that accompanied economic inequality because there simply wasn’t much inequality within the political community of white men. Today we tend to emphasize how undemocratic the founding era was when judged by our values — its exclusion of women, the enslavement of African Americans, and violence against Native Americans. But in doing so, we risk missing something important: Many in the founding generation believed America was exceptional because of the extraordinary degree of economic equality within the political community as they defined it.
We live in a second Gilded Age – an era of extreme economic inequality and monopoly power. Wages for workers have been largely stagnant for a generation, while CEO pay has skyrocketed. A small number of firms now dominate many sectors of the economy. And the consequence for democracy is dire: study after study in political science shows that government is responsive to the preferences of the wealthy and their interest groups, but not to ordinary people. This creates a vicious cycle in which the wealthy and corporations can rig the political rules to benefit themselves. And the rigged system only makes them wealthier and more powerful. The danger of “a permanent inequality of conditions and aristocracy” is upon us.
These reformers recognized that concentrated economic power – in any form – was a threat to freedom and democracy. Concentrated economic power not only allowed for localized oppression, especially of workers in their daily lives, but it also made it more likely that big corporations and wealthy people wouldn’t be subject to the rule of law or democratic controls. Reformers’ answer to the concentration of economic power was threefold: break up economic power, rein it in through regulation, and tax it.
It was the reformers of the Gilded Age and Progressive Era who invented America’s antitrust laws – from the Sherman Antitrust Act of 1890 to the Clayton Act and Federal Trade Commission Acts of the early 20th century. Whether it was Republican trustbuster Theodore Roosevelt or liberal Supreme Court Justice Louis Brandeis, courageous leaders in this era understood that when companies grow too powerful they threatened not just the economy but democratic government as well. Break-ups were a way to prevent the agglomeration of economic power in the first place and promote an economic democracy, not just a political democracy.
Outside of utilities, regulations prohibited unsafe and unhealthy practices – food and drug laws, child labor laws, and workplace safety laws. Reformers pushed for the internal regulation of corporations, calling for the expansion of cooperative ownership and the creation of “industrial democracy,” and the country ultimately settled on labor union collective bargaining to both empower workers and rein in managers. It was regulation that defanged the most dangerous parts of capitalism.
Reformers of this era also understood that individuals and corporations who accumulated enormous amounts of wealth gained political power too, and so could become less accountable in the economy, in the political realm, and the courts of law. So they passed corporate taxes and income taxes. And when the Supreme Court struck down the federal income tax, Progressive-Era reformers got organized – and passed a constitutional amendment reversing the Court’s decision.
In addition to guarding against the accumulation of economic power, Progressive Era reformers sought to prevent it from being converted into political power. To prevent economic power from infecting politics, they passed the first federal campaign finance laws. But they also adopted structural reforms to make the political process itself more democratic. Perhaps the best example is the passage of a constitutional amendment for the direct election of senators. This fundamental change to the constitutional structure ended the era of sometimes corrupt state legislatures sending corporate bosses and their cronies to Washington.
Theodore Roosevelt’s quote “There can be no real political democracy without something approaching an economic democracy” entails a lot of reality. The truth is that the two work hand in hand. Political democracy helps foster economic democracy as the people work to make the country more egalitarian. A more economically equal society feeds into political democracy, as no one accumulates so much power that they can dominate the government or their fellow citizens.
While much of the debate has been on the moral or economic consequences of economic inequality, the more fundamental problem is that our constitutional system might not survive in an unequal economy. Campaign contributions, lobbying, the revolving door of industry insiders working in government, interest group influence over regulators, and even think tanks — all of these features of our current political system skew policymaking to favor the wealthy and entrenched economic interests. “The rich will strive to establish their dominion and enslave the rest,” Gouverneur Morris observed in 1787. “They always did. They always will.” An oligarchy — not a republic — is the inevitable result.
As a republic descends into an oligarchy, the people revolt. Populist revolts are rarely anarchic; they require leadership. Morris predicted that the rich would take advantage of the people’s “passions” and “make these the instruments for oppressing them.” The future Broadway sensation Alexander Hamilton put it more clearly: “Of those men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people: commencing demagogues, and ending tyrants.”
We must revive public utility regulation and think seriously about the necessary infrastructure of modern society – from a public option for broadband internet to basic bank accounts for everyone. We need to create a more just and equitable tax system – including treating all income the same, adopting a wealth tax, and reviving estate and inheritance taxes. This will, as Thomas Jefferson once said of his economic reforms, lay “the axe to the root of pseudo aristocracy.” To accomplish these reforms – and others – we will need to start by passing new laws that prevent the corruption of our political process: campaign finance laws, anti-corruption laws, revolving door laws, lobbying laws, and pro-democracy reforms that will empower the people, not just the powerful.
None of these reforms will be easy. Some intellectuals and political figures will fight them with claims of efficiency and economic growth. Many others who personally benefit from the status quo will fight to halt, slow, or water down reforms. As Frederick Douglass once observed: “Power concedes nothing without a demand. It never did and it never will.”
But even with a revival of these strategies, even with the political movement to back it up, even with courageous leaders at the helm to implement these policies, the roadmap for reforming industrial capitalism will still be insufficient to rescue democracy today. New approaches will also be needed.
A central lesson of the Gilded Age and Progressive Era reformers is not what they did to reform the system. It is that they had the courage and creativity to think for themselves and pursue bold reforms, persistently, over decades.
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